Running head: WEEKLY REFLECTION 1

Team D Reflection
Dianne Daniels, Vernon Daniels, Shannon Glascock,
Shonda Mooney, Maggie Perez, Maricell White
ACC/422
June 23, 2012
Donald Minyard


























WEEKLY REFLECTION 2
Team Reflection
In this weeks reflection, the team will discuss the importance of inventory
valuation to the presentation of the balance sheet and the income statement. In
addition, we will also talk about how do accounts mean by capitalizing fixed assets and
how does that affect the balance sheet and the income statement.
Inventories are asset items that a company holds for sale in the ordinary course
of business, or goods that it will use or consume in the production of goods to be sold,
(Kieso, et al., 2012). According to Kieso, et al (2012, p.436), A merchandising concern,
inventory consists of one category merchandise ready for sale whereas manufacturing
inventories that consist of raw materials, work in process, and finished good.
Inventory is an asset and its ending balance should be reported as a current
asset on a companys balance sheet. Inventory is not an income statement account.
Inventories are valid costs and signify future benefits to enterprises, which the
statement of financial position includes preserved assets at a specific point in time.
Inventories are assets acknowledge at a certain point in time for which a balance sheet
is prepared, and presented fairly. Beginning and ending inventories are included in the
computation of the bottom line with the objective of arriving at cost of sale sold during
the same period and recorded in the financial report, which the process of inventory
valuation is one of the important processes in producing financial statements. The
change in inventory is a component in the calculation of the Cost of Goods Sold (Cost of
Goods Sold is considered to be an expense and is subtracted from Sales on a
merchandising companys income statement). Some income statements will show the
calculation of Cost of Goods Sold as Beginning Inventory + Net Purchases = Goods
WEEKLY REFLECTION 3
Available Ending Inventory. In that situation, the beginning and ending inventory does
appear on the income statement.
Capitalizing a fixed asset refers to the accounting behavior used for the purchase
of items that will be used in the operation of the business. The process involves
recording the purchase as an asset as opposed to a period expense; next amortizing or
depreciating that asset, portions of the purchase price over a set period, in regular
intervals.
All assets are payments in advance for future expenses. If the payments are for
less than one year, then it is recorded under current assets. However, if they are for
more than one year, it is recorded as fixed assets. This means that the payment made
is capitalized by recording it as a fixed assets because the benefits have to be taken for
more than one year. When fixed assets are used over time, it is being transferred
gradually to expense; this is known as depreciation expense. The recording of payment
for fixed assets increases the total fixed assets and decreases the current assets, if
payment has been made in cash. When the depreciation is recorded, it increases the
expense in income statement and decreases the value of particular fixed assets by the
same amount.
In conclusion, we learned that inventory valuation on companys balance sheet
signifies companys assets. It is vital that a company show the correct value of
inventory through raw materials, work in progress, or finished products. This will give
users the most accurate information needed to see what assets the company has.
Hence, inventory valuation can have conflicting issues such as accurate valuation of
inventories presented on the financial position and proper matching of inventory costs
WEEKLY REFLECTION 4
against revenues on the income statement, and the cost of goods sold, an important
element of the income statement is affected by proper valuation of inventories.
Correctly valuing inventory is significant for managing a business and assessing the skill
of those managers. Inventory is a use of funds, so every dollar spent on inventory is
money that cannot be spent elsewhere. On the other hand, capitalizing assets is using
amortizing or depreciation. Depreciation is basically spreading the cost of the assets
over the period of its useful life. There are different types of depreciation. The most
commonly used method of depreciation is the straight-line method. All the types of
methods affect the balance sheet and income statement. The effect on the balance
sheet is that the first year the asset is bought, the asset will increase and then it will
decrease the year after.











Reference
WEEKLY REFLECTION 5
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2012). Intermediate Accounting (14
th

ed.). Danver, MA: John Wiley & Sons, Inc.